Shares represent ownership of your limited company. Getting your share structure right from the outset is important — it determines who controls the company, how dividends are paid, and how the business is valued for future investment or sale. This guide explains the basics and key decisions for new founders.
What are Shares?
Shares represent units of ownership in a limited company. Each share gives the holder certain rights, which depend on the class of share. When you form a company, you create an initial number of shares and allocate them to shareholders. The total number and value of shares issued is called the "statement of capital".
Most small companies start with 100 ordinary shares of £1 each (total capital: £100). This is not the company's bank balance — it is simply a nominal value used for administrative purposes.
Ordinary Shares
Ordinary shares are the standard type. They typically carry equal rights to:
- Vote at general meetings (one vote per share)
- Receive dividends declared by the company
- Share in the assets on a winding up (after debts are paid)
Alphabet Shares (A, B, C Classes)
Many small companies create different classes of ordinary shares (A shares, B shares, etc.) to allow flexibility in dividend allocation. Each class can receive a different dividend amount per share, even in the same period.
This is particularly useful for family companies where partners or spouses hold different share classes, allowing dividends to be directed to whoever has the most tax-efficient position in a given year. HMRC's "settlements legislation" may apply if shares are transferred to a spouse with no genuine commercial purpose, so take professional advice before implementing.
How Many Shares Should You Issue?
There is no legal minimum (beyond 1 share) for private companies. Most advisers recommend starting with 100 shares of £1 each. This makes equity splits easy to calculate as percentages (50 shares = 50% ownership) and leaves room to issue further shares to future investors or employees without complex redenomination.
Splitting Shares Between Founders
If you have co-founders, agreeing on equity splits before formation is critical. Common approaches:
- 50/50 split: Simple and equal, but requires a casting mechanism if directors cannot agree
- Unequal splits (e.g. 60/40): Reflects different contributions but should be formalised in a shareholders' agreement
- Vesting provisions: Shares vest over time based on continued involvement, protecting the business if a founder departs early
Persons of Significant Control (PSC)
Anyone who owns more than 25% of shares, voting rights, or has the right to appoint or remove the majority of directors is a Person of Significant Control. All PSCs must be recorded in the company's PSC register and filed at Companies House. This information is publicly visible.
Shareholders' Agreements
If you have more than one shareholder, a shareholders' agreement is strongly recommended. This is a private contract (unlike the Articles of Association, it is not publicly filed) that governs the relationship between shareholders, including drag-along and tag-along rights, pre-emption rights on share transfers, deadlock provisions, and what happens if a shareholder wants to exit.
Frequently Asked Questions
Do I need shares if I am the sole founder?
Yes. Every limited company must have at least one share and one shareholder. As the sole founder, you will typically hold 100% of the shares.
Can I issue more shares after the company is formed?
Yes. New shares can be issued at any time by a resolution of the directors (or shareholders, depending on your Articles). Existing shareholders have pre-emption rights (first right of refusal) on new share issues under the Companies Act unless they waive this right.
What is the difference between issued and authorised share capital?
Since the Companies Act 2006, UK companies no longer have an "authorised share capital" — there is no limit on the total shares that can be issued unless the Articles impose one. "Issued share capital" is the total of shares that have actually been issued and are outstanding.
Can I give shares to my spouse to reduce tax?
This is a common strategy but must be genuine. Your spouse must receive real shares with real value, and any dividend strategy must not fall foul of HMRC's settlement legislation (the "Arctic Systems" rules). Take professional tax advice before doing this.
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